Bailey v. Atlantic Automotive Corp. et al

Filing 51

MEMORANDUM AND ORDER Granting in Part and Denying in Part 21 Motion to Dismiss Second Amended Complaint filed by Heritage of Owings Mills, Inc., Annapolis Motors, LLC, Heritage of Owings Mills II, Inc., Heritage Imports, Inc., Heritage o f Towson II, Inc., Heritage Chevrolet-Buick, Inc., Tischer Autopark, Inc., Herb Gordon Auto Group, Inc., Heritage of Westminster, Inc., Griffith Auto Group, Inc., Heritage of Towson, Inc., Heritage of Bel Air, Inc., Heritage of Towson III, Inc., I. Heritage, Inc., Atlantic Automotive Corp.. Signed by Judge Marvin J. Garbis on 1/17/14 (cags, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
OLIVIA BUCKNER BAILEY
*
On Her Own Behalf and on Behalf
of all Other Consumers Similarly*
Situated
*
Plaintiff
*
vs.
*
ATLANTIC AUTOMOTIVE CORP.,
et al.
*
Defendants
*

*

*

*

CIVIL ACTION NO. MJG-13-1243

*
*

*

*

*

*

MEMORANDUM AND ORDER RE: MOTION TO DISMISS
The Court has before it Defendants' Motion to Dismiss
Second Amended Complaint [Document 21] and the materials
submitted relating thereto.

The Court has held a hearing and

has had the benefit of the arguments of counsel.

I.

BACKGROUND1
In 2009, Plaintiff Olivia Buckner Bailey ("Plaintiff" or

"Bailey") purchased a used vehicle ("the Vehicle") from Heritage
Chevrolet-Buick, Inc. ("Heritage") that was not identified as
having been a prior short-term rental.

Subsequent to her

purchase, Bailey discovered that the vehicle had in fact
formerly been used commercially as a short-term rental.

1

The "facts" herein are as alleged by Plaintiff and are not
necessarily agreed upon by Defendants.

Bailey has filed the instant class action complaint2 against
Heritage, its 100% owner Atlantic Automotive Corporation
("Atlantic"), and some twenty3 other wholly owned subsidiaries of
Atlantic ("the Other Dealer Defendants")4 that sell used cars in
the course of their business.
Bailey asserts that Heritage and the Other Dealer
Defendants have engaged in a concerted and fraudulent scheme to
sell prior short-term rental vehicles to consumers without
disclosing that fact.

Bailey seeks to proceed on behalf of a

class consisting of persons who purchased former short-term
2

On February 1, 2013, Bailey commenced the instant action on
behalf of herself and other similarly situated consumers in the
Circuit Court for Baltimore County, Maryland. On April 26,
2013, the Defendants timely removed the action to this Court.
3
The parties sometimes refer to a different number of
subsidiaries. In any event, there are well over a dozen, and
the precise number is immaterial.
4
Heritage Imports, Inc. t/a Heritage Subaru, Heritage
Volkswagen; Heritage of Owings Mills II, Inc. t/a Heritage
Chrysler Dodge Jeep Ram Owings Mills; I. Heritage, Inc. t/a
Heritage Mazda; Heritage of Towson, Inc. t/a Heritage Honda;
Heritage of Towson II, Inc. t/a Heritage Hyundai Towson;
Heritage of Towson III, Inc. t/a Heritage Mazda Towson; Heritage
of Owings Mills, Inc. t/a Heritage Fiat; Griffith Auto Group,
Inc. t/a Heritage Chrysler Dodge Jeep Ram Parkville; Griffith
Auto Group, Inc. t/a Heritage Volkswagen Parkville; Heritage of
Belair, Inc. t/a Heritage Mazda of Bel Air; Heritage of Bel Air,
Inc. Heritage Automall of Bel Air; Herb Gordon Auto Group, Inc.
t/a Herb Gordon Subaru; Herb Gordon Auto Group, Inc. t/a Herb
Gordon Volvo; Tischer Autopark, Inc. t/a Porsche of Silver
Spring; Tischer Autopark, Inc. t/a Audi of Silver Spring;
Tischer Autopark, Inc. t/a BMW of Silver Spring; Herb Gordon
Auto Group, Inc. t/a Mercedes-Benz of Silver Spring; Herb Gordon
Auto Group, Inc. t/a Herb Gordon Nissan; Heritage of
Westminster, Inc. t/a Heritage Honda of Westminster; and
Annapolis Motors, LLC t/a Mercedes-Benz of Annapolis and Smart
Center of Annapolis.
2

rentals from Heritage and the Other Dealer Defendants without
receiving disclosure or identification of that information in
violation of Maryland law.
The Second Amended Complaint ("SAC") presents claims in ten
Counts:
Count One

Implied Warranty of Merchantability,

Count Two

Magnuson-Moss Warranty Act,

Count Three

Maryland Consumer Protection Act,

Count Four

Deceit by Non-Disclosure or
Concealment,

Count Five

Unjust Enrichment,

Count Six

Negligent Misrepresentation,

Count Seven

Breach of Contract,

Count Eight

Racketeer Influenced and Corrupt
Organizations Act ("RICO") – 18 U.S.C.
§ 1962(a),

Count Nine

RICO – 18 U.S.C. § 1962(c), and

Count Ten

RICO – 18 U.S.C. § 1962(d).

By the instant motion:


The Other Dealer Defendants seek dismissal of all
claims against them pursuant to Federal Rule of
Civil Procedure 12(b)(1)5 for lack of standing, and



Heritage and Atlantic seek dismissal of the
claims asserted against them in Counts One, Two
Three, Eight, Nine, and Ten pursuant to Rule
12(b)(6).

5

All "Rule" references herein are to the Federal Rules of
Civil Procedure.
3

II.

STANDING TO SUE THE OTHER DEALER DEFENDANTS
In June, 2009, Bailey purchased the Vehicle from Heritage

in a transaction in which Heritage violated Maryland law by
failing to disclose properly the Vehicle's pertinent history.
Bailey had no relevant contact or communication with any of the
Other Dealer Defendants.

The Other Dealer Defendants contend

that Bailey lacks standing to sue them on any of the claims made
in the SAC.
The Defendants assert that Bailey lacks standing under
Article III of the Federal Constitution to pursue the claims
against the Other Dealer Defendants because she had no direct
commercial dealings with those defendants pertinent to this
action and because there is no cognizable claim of conspiracy
capable of salvaging her lack of standing.

A.

Nature of the Motion

A motion to dismiss for lack of constitutional or
prudential standing is generally treated as a motion under Rule
12(b)(1) because, absent a Plaintiff with standing, a court
lacks subject matter jurisdiction over a claimant's case.

See

McInnes v. Lord Balt. Emp. Ret. Income Account Plan, 823 F.
Supp. 2d 360, 362 (D. Md.

2011); cf. Pitt Cnty. v. Hotels.com,

L.P., 553 F.3d 308, 312 (4th Cir. 2009) ("Our determination that
the County has standing to bring this action countermands the

4

district court's dismissal pursuant to Federal Rule of Civil
Procedure 12(b)(1).").
While a 12(b)(1) motion permits the district court to
consider evidence outside the pleadings without converting the
motion to dismiss into one for summary judgment,6 the parties in
the instant case have not requested consideration of such
evidence.

See Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th

Cir. 1999).

As a result, when considering a motion to dismiss

under Rule 12(b)(1) and "a defendant has not provided evidence
to dispute the veracity of the jurisdictional allegations in the
complaint, the court accepts facts alleged in the complaint as
true just as it would under Rule 12(b)(6)."

Nat'l Alliance for

Accessibility, Inc. v. Big Lots Stores, Inc., No. 1:11-CV-941,
2012 WL 1440226, at *3 (M.D.N.C. Apr. 26, 2012).
Plaintiff bears the ultimate burden "clearly to allege
facts demonstrating that [s]he is a proper party to invoke
judicial resolution of the dispute."

Warth v. Seldin, 422 U.S.

490, 518 (1975).

B.

Legal Principles

"In every federal case, the party bringing the suit must
establish [Article III] standing to prosecute the action.
6

'In

Rule 12(b)(1) also permits the district court to resolve
ultimately any factual disputes related to subject-matter
jurisdiction.
5

essence, the question of standing is whether the litigant is
entitled to have the court decide the merits of the dispute or
of particular issues.'"

Elk Grove Unified Sch. Dist. v. Newdow,

542 U.S. 1, 11 (2004) (quoting Warth, 422 U.S. at 498).

To meet

the standing requirement, "[a] plaintiff must allege personal
injury fairly traceable to the defendant's allegedly unlawful
conduct and likely to be redressed by the requested relief."
Allen v. Wright, 468 U.S. 737, 751 (1984).

That is, "'the party

invoking federal court jurisdiction must show that (1) it has
suffered an injury in fact, (2) the injury is fairly traceable
to the defendants' actions, and (3) it is likely, and not merely
speculative, that the injury will be redressed by a favorable
decision.'"

Pitt Cnty., 553 F.3d at 312 (citation omitted).

These elements are the constitutional components of standing.
See Allen, 468 U.S. at 751.
With respect to injury in fact, the plaintiff must
demonstrate the "invasion of a legally protected interest which
is (a) concrete and particularized, and (b) 'actual or imminent,
not conjectural or hypothetical.'"

Lujan v. Defenders of

Wildlife, 504 U.S. 555, 560 (1992) (citations omitted).

"[T]he

injury must affect the plaintiff in a personal and individual
way."

Id. at 560 n.1.

In line with this requirement, third

party standing is generally forbidden because "a litigant must
assert his or her own legal rights and interests, and cannot

6

rest a claim to relief on the legal rights or interests of third
parties."

Powers v. Ohio, 499 U.S. 400, 410 (1991).

The

general prohibition against third party standing is one of the
prudential components of standing, which are not
constitutionally required, but are "matters of judicial selfgovernance."

See Elk Grove, 542 U.S. at 12.

These constitutional and prudential standing requirements
and the principles applicable thereto are pertinent in the
context of a putative class action.

As the United States

Supreme Court has noted:
"That a suit may be a class action . . .
adds nothing to the question of standing,
for even named plaintiffs who represent a
class 'must allege and show that they
personally have been injured, not that
injury
has
been
suffered
by
other,
unidentified members of the class to which
they belong and which they purport to
represent.'"
Lewis v. Casey, 518 U.S. 343, 357 (1996) (alteration in
original) (quoting Simon v. E. Ky. Welfare Rights Org., 426 U.S.
26, 40 n. 20 (1976)).

The United States Court of Appeals for

the Fourth Circuit has echoed this outlook, stating that in the
class action context, it "is essential that named class
representatives demonstrate standing through a 'requisite case
or controversy between themselves personally and'" each
defendant.

Cent. Wesleyan Coll. v. W.R. Grace & Co., 6 F.3d

177, 188 (4th Cir. 1993) (quoting Blum v. Yaretsky, 457 U.S.

7

991, 1001 n. 13 (1982)); see also Lieberson v. Johnson & Johnson
Consumer Co., Inc., 865 F. Supp. 2d 529, 537 (D.N.J. 2011)
(holding that the plaintiff lacked standing to pursue putative
class action claims of consumer fraud against a baby bath
product manufacturer as to any products the named plaintiff did
not allege she used or purchased).
When a named plaintiff in a putative class action seeks to
pursue claims against defendants with whom the named plaintiff
did not have direct dealings, significant questions arise as to
whether the plaintiff can establish an injury in fact with
respect to those defendants.

In such a situation, a plaintiff

may be able to satisfy the injury aspect of standing through
sufficient allegations of conspiracy.

For instance, the Fourth

Circuit has recognized that "allegations of conspiracy among
parties with whom a plaintiff did not directly deal may confer
standing upon the plaintiff to sue the non[-]dealing parties."
Cent. Wesleyan Coll., 6 F.3d at 188 (citing Brown v. CameronBrown Co., 652 F.2d 375, 378 (4th Cir. 1981)).

However, a

plaintiff's reliance on allegations of conspiracy "'may make it
substantially more difficult'" to satisfy the "case or
controversy" requirement of Article III,7 given the indirectness
of the injury.

7

See id. (quoting Warth, 422 U.S. at 505).

The "case or controversy" requirement of Article III reads:

8

C.

Conspiracy Contention

Bailey contends that the Other Dealer Defendants are liable
as co-conspirators with Heritage and Atlantic because the
relevant actions of Heritage were in furtherance of a conspiracy
to sell former short-term rental vehicles to consumers without
disclosing the vehicles' history.
A civil conspiracy is "'a combination of two or more
persons by and agreement or understanding to accomplish an
unlawful act or to use unlawful means to accomplish an act not
in itself illegal, with the further requirement that the act or
the means employed must result in damages to the plaintiff.'"
Hoffman v. Stamper, 385 Md. 1, 24, 867 A.2d 276, 290, (2005)
(citation omitted); see also Beck v. Prupis, 529 U.S. 494,

The judicial Power shall extend to all
Cases, in Law and Equity, arising under this
Constitution, the Laws of the United States,
and Treaties made, or which shall be made,
under their Authority; – . . . – to
Controversies to which the United States
shall be a Party; – to Controversies between
two or more States; – between a State and
Citizens
of
another
State;
–
between
Citizens of different States . . . .
U.S. Const. art. III, § 2, cl. 1. The Supreme Court has stated
that "[b]y cases and controversies are intended the claims of
litigants brought before the courts for determination by such
regular proceedings as are established by law or custom for the
protection or enforcement of rights, or the prevention, redress,
or punishment of wrongs." Muskrat v. United States, 219 U.S.
346, 357 (1911).
9

500-04 (2000) (discussing a civil cause of action for conspiracy
in the context of a RICO claim).
The SAC includes allegations that present a plausible claim
that Heritage, the Other Dealer Defendants, and Atlantic acted
in concert pursuant to an agreement to accomplish an unlawful
purpose of selling prior rental cars without disclosing that
information to customers, one of whom was Bailey, who sustained
damage as a result.
Accordingly, Bailey would have a valid claim against the
Other Dealer Defendants if it were not for the fact that
Heritage and each of the Other Dealer Defendants was a 100%owned subsidiary of Atlantic.

This fact, however, renders

pertinent the intracorporate conspiracy doctrine recognized by
the Supreme Court in Copperweld Corp. v. Independence Tube
Corp., 467 U.S. 752 (1984), and its progeny.

This doctrine

will, absent a pertinent exception, require dismissal of
Bailey's conspiracy claims against the Other Dealer Defendants.
Cf. AGV Sports Grp., Inc. v. Protus IP Solutions, Inc., No. RDB
08-3388, 2009 WL 1921152, at *4-5 (D. Md. July 1, 2009)
(concluding that the plaintiff failed to make a prima facie
showing of personal jurisdiction based on a conspiracy theory on
the grounds that the defendants were legally incapable of
conspiring with each other under the intracorporate conspiracy
doctrine).

10

1.

The Copperweld Decision

In Copperweld Corp. v. Independence Tube Corp., the Supreme
Court affirmed the validity of the intracorporate conspiracy
doctrine8 in antitrust cases, holding that a corporation is
legally incapable of conspiring with its wholly owned
subsidiary, or its agents, officers, or employees, because such
a claim is tantamount to a conspiracy made up of a single actor
or of the actions of a single actor.9
77 (1984).

467 U.S. 752, 766-67, 776-

The Court explained that "[a] parent and its wholly

owned subsidiary have a complete unity of interest[, and t]heir
objectives are common [because] the subsidiary acts for the
benefit of the parent."

Id. at 771.

Thus, "the coordinated

activity of a parent and its wholly owned subsidiary must be
viewed as that of a single enterprise."

Id.

Courts have

applied the intracorporate conspiracy doctrine to a variety of
civil conspiracy claims, including common law and RICO
conspiracy claims.

See, e.g., Lewin v. Cooke, 28 F. App'x 186,

8

The "intracorporate conspiracy doctrine" is also referred
to as the "intracorporate immunity doctrine." See Nilavar v.
Mercy Health Sys. W. Ohio, 142 F. Supp. 2d 859, 888 (S.D. Ohio
2000) (acknowledging doctrine referred to by both names).
9
Courts had applied the intracorporate conspiracy doctrine
prior to the Supreme Court's decision in Copperweld. See, e.g.,
Greenville Publ'g Co. v. Daily Reflector, Inc., 496 F.2d 391,
399 (4th Cir. 1974) ("The district court held that a corporation
cannot be guilty of conspiring with its officers or agents
. . . . We agree with the general rule . . . .").
11

195 (4th Cir. 2002) (state law conspiracy claim); Walters v.
McMahen, 795 F. Supp. 2d 350, 351, 358-59 (D. Md. 2011) (RICO
conspiracy claim), aff'd, 684 F.3d 435 (4th Cir. 2012); see also
Locus v. Fayetteville State Univ., 870 F.2d 655, at *1-2 (4th
Cir. 1989) (acknowledging application of the doctrine in the
civil rights context).

The doctrine has also been extended to

preclude, as a matter of law, claims of conspiracies among
sister corporations wholly owned by the same parent.

See, e.g.,

Advanced Health Care Servs., Inc. v. Radford Cmty. Hosp., 910
F.2d 139, 145-47 (4th Cir. 1990) (examining an antitrust case).

2.

The Independent Personal Stake Exception
a.

Legal Principles

The Fourth Circuit has recognized "one narrow exception to
the intracorporate immunity doctrine — the independent personal
stake exception."

Am. Chiropractic Ass'n v. Trigon Healthcare,

Inc., 367 F.3d 212, 224 (4th Cir. 2004).

In an antitrust case

in which a corporate defendant was alleged to have conspired
with the president of the company, the Fourth Circuit
acknowledged that while generally "a corporation cannot be
guilty of conspiring with its officers or agents, . . . an
exception may be justified when the officer has an independent
personal stake in achieving the corporation's illegal
objective."

Greenville Publ'g Co. v. Daily Reflector, Inc., 496

12

F.2d 391, 399 (4th Cir. 1974).

Stated differently, the

exception is applied "only where a co-conspirator possesses a
personal stake independent of his relationship to the
corporation."

ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 179

(4th Cir. 2002) (citing Oksanen v. Page Mem'l Hosp., 945 F.2d
696, 705 (4th Cir. 1991)).

The independent personal stake

exception is rooted in the notion "that there can be no unity of
purpose between a corporation and its agents if the agents have
a personal stake independent of the interests of the
corporation."

Baylor v. Comprehensive Pain Mgmt. Ctrs., Inc.,

No. 7:09cv00472, 2011 WL 1327396, at *13 (W.D. Va. Apr. 6,
2011); see also ShoreGood Water Co., Inc. v. U.S. Bottling Co.,
No. RDB 08-2470, 2009 WL 2461689, at *7 (D. Md. Aug. 10, 2009)
("In order for this exception to apply, there must be a showing
that the interests of the company and the conspirators are
clearly distinct.").
The Fourth Circuit has considered there to be a personal
stake of a corporate agent adequate to overcome the
intracorporate conspiracy doctrine in only limited
circumstances.

For instance, the Fourth Circuit views the

exception as covering situations in which the corporate agent
personally stands to benefit financially from the conspiracy
based upon the agent's economic interest in an entity separate
from the principal corporation.

See Greenville Publ'g Co., 496

13

F.2d at 399-400.

Additionally, the exception "plainly applies"

when corporate agents conspire with each other to send the
corporation into bankruptcy by siphoning money out of the
corporation because in such an situation, the conspirator
corporate agents "personally profited at [the corporation's]
expense" as a result of the scheme.

ePlus Tech., 313 F.3d at

179-80; see also In re Rood, 482 B.R. 132, 144 (D. Md. 2012)
(applying the independent personal stake exception when a
corporate agent used corporate entities as "corporate shells to
facilitate his illegal activities" by taking corporate monies
for his own personal purposes), aff'd sub nom. S. Mgmt. Corp.
Ret. Trust v. Rood, 12-2359, 532 F. App'x 370 (4th Cir. 2013)
and aff'd sub nom. S. Mgmt. Corp. Ret. Trust v. Jewell, No. 122319, 533 F. App'x 228 (4th Cir. 2013).

However, where a

corporate agent's participation in the conspiracy merely yields
higher compensation to the employee or officer from the
corporation, courts have generally considered the interests of
the company and the employee/officer conspirator to be aligned.
See, e.g., United States v. Gwinn, No. 5:06-CV-00267, 2008 WL
867927, at *25-26 (S.D. W. Va. Mar. 31, 2008).

14

b.

Alleged Personal Stake of Heritage,
Atlantic, and the Other Dealer Defendants

Bailey contends that she has alleged sufficiently the
exception to the intracorporate conspiracy doctrine because the
named corporate Defendants had an independent "personal
financial stake in the above-referenced conspiracy and
[associated] to illegally increase the individual profits and
personal gain of each Dealer Defendant [and Heritage] and its
employees."

SAC ¶ 56.

According to Bailey:

[P]ayments by [Plaintiff] and [the putative]
Class members to one Defendant actually
resulted in separate monetary benefits to
each of the individual Defendants resulting
from their conspiracy and association as
MileOne Automotive.
The Defendants and/or
their owners and employees had an individual
profit
motive
in
selling
prior-rental
vehicles without disclosing such prior use
to consumers.
Id. ¶ 165.

Thus, Plaintiff takes the position that because each

Defendant corporation stood to profit individually from the
scheme – as separate entities - each Defendant had a personal
stake in the conspiracy wholly independent from its relationship
with Atlantic.

The Defendants assert that the exception is

inapplicable and/or is contrary to Bailey's claim that Heritage
and the Other Dealer Defendants acted at the direction of
Atlantic.
The independent personal stake exception is invoked and
evaluated predominately in the context of an alleged conspiracy

15

between a corporation and its officers, directors, and/or
employees or among agents of the same principal corporation.
Cf. Gwinn, 2008 WL 867927, at *25.

In the typical situation, a

court can logically compare the individual conspirators'
interests in the conspiracy with those of the principal
corporation to determine whether the individual conspirators
have personal economic interests in achieving the object of the
conspiracy outside of, or contrary to, their roles as agents of
the corporation.
However, when the conspirators are a parent and its wholly
owned subsidiaries, questions arise as to the applicability of
the independent personal stake exception.

For example, it is

not clear whether wholly owned subsidiaries are legally capable
of having economic interests or a stake in the conspiracy
independent of and/or separate from the interest of their
parent.
Plaintiff has pointed to no judicial decision addressing
the independent personal stake exception in the instant
circumstance.10

While this Court has not located any pertinent

10

At the hearing, Plaintiff cited to two cases in support of
her position that a parent and a wholly owned subsidiary can
have distinct financial interests for purposes of the
independent personal stake doctrine. The Court finds these
cases unpersuasive because a parent and a wholly owned
subsidiary were not truly at issue in the cases cited by
Plaintiff. See Painter's Mill Grille, LLC v. Brown, 716 F.3d
342, 345, 3852-53 (4th Cir. 2013) (addressing the exception as
16

judicial analysis on the discrete parent/wholly owned subsidiary
issue, a few courts have evaluated the independent personal
stake exception in the context of a conspiracy among only
principal and agent entities ("all-entity conspiracy").

In

Ashco International Inc. v. Westmore Shopping Center Associates,
42 Va. Cir. 427 (Va. Cir. Ct. June 19, 1997), the Circuit Court
of Virginia for Fairfax County dismissed a claim that a shopping
center company conspired with its agent, an architectural
company, to cause the general contractor plaintiff to breach the
plaintiff's contract with the shopping center company for
construction of an addition to the shopping center.
6-7.

Id. at *1,

The plaintiff claimed that the architectural company for

the addition job conspired with the shopping center company "to
appropriate to their benefit labor and material of [plaintiff
and] to create grounds to breach the contract."

Id. at *6.

The

court concluded that the principal entity and the agent entity
could not conspire together, reasoning "that the independent
stake exception d[id] not save Plaintiff's claim" because

to an alleged conspiracy between a parent corporation, a
subsidiary, and three individual employees of both entities and
affirming dismissal of the conspiracy claim on grounds that the
employees had no independent stake in the conspiracy); Mitchell
Tracey v. First Am. Title Ins. Co., 935 F. Supp. 2d 826, 842-46
(D. Md. 2013) (evaluating an alleged conspiracy between a
corporate defendant and non-party title agents who were
permitted to work with different insurance companies and
determining that "[t]he intracorporate conspiracy doctrine does
not preclude relief.").
17

"[a]ssuming that the . . . exception applies . . . to intraagency conspiracies,[] the facts alleged d[id] not support the
inference that [the agent company] gained any direct personal
benefit from the alleged conspiracy."

Id. at *7.

Additionally, the Eleventh Circuit in St. Joseph's
Hospital, Inc. v. Hospital Corp. of Am., 795 F.2d 948 (11th Cir.
1986), assessed an antitrust conspiracy claim among an
independent hospital ("the independent hospital"), a hospital
corporation ("the corporation"),11 and the corporation's wholly
owned subsidiary that managed the hospital ("the management
company").

Id. at 949-51, 955-56.

In St. Joseph's Hospital, a

plaintiff hospital alleged that the conspirators engaged in a
scheme to stifle competition by preventing the plaintiff from
obtaining state certification to establish a cardiac surgery
program at its hospital.

Id. at 949-53.

On appeal from a Rule

12(b)(6) dismissal, the Eleventh Circuit discussed the lower
court's use of a "stacking approach" and agreed that, based on
the allegations in plaintiff's complaint, the defendants were a
single entity for purposes of the conspiracy claim.
56.

Id. at 955-

That is, the lower court determined that (1) the

corporation and management company were a single entity based on
the total ownership relationship, (2) the management company was

11

A hospital corporation is a corporation that operates
hospitals, some of which it owns and some of which it does not.
18

in an employment relationship with the independent hospital, and
thus (3) they were all a single group generally incapable of
conspiring with each other.

See id. at 956.

The plaintiff in St. Joseph's Hospital invoked the
independent personal stake exception, arguing that the
corporation/hospital management company and the independent
hospital "were separate [independent] entities[12] with separate
economic interests."

Id.

The Eleventh Circuit did not reject

this theory, but instead found that plaintiff had "failed to
support the allegations with sufficient facts to show that
anyone other than [the hospital] had an 'independent personal
stake' in the outcome of the conspiracy."

Id.

Hence, there is

judicial recognition that the independent stake exception may
allow for a conspiracy between two independent entities in a
principal-agent relationship to the same extent as which the
exception applies to the relationship between a corporation and
its individual officers or agents.13
However, an all-entity conspiracy made-up of a parent
corporation and its wholly owned subsidiaries is a horse of a
different color due to the innate economic unity of such

12

In St. Joseph's Hospital, the corporation/hospital
management company had no ownership interest in the independent
hospital.
13
However, in the all-entity context, assessment of whether
an entity agent has an independent personal stake may be more
complicated than when the agent is an individual.
19

entities.

As the Supreme Court explained in Copperweld, a

parent corporation and its wholly owned subsidiary necessarily
have aligned economic interests because the parent is the sole
shareholder of the subsidiary.

See Copperweld, 467 U.S. at 771-

72. As a result, on the entity level, the economic prosperity of
the subsidiary inures to the benefit of the parent as the sole
owner.14

See In re Teleglobe Commc'ns Corp., 493 F.3d 345, 367

(3d Cir. 2007) ("[P]arents and their wholly owned subsidiaries
have the same interests because all of the duties owed to the
subsidiaries flow back up to the parent[ and] the only interest
of a wholly owned subsidiary is in serving its parent.").

Yet,

if sole-owner status categorically precluded availability of the
independent personal stake exception, then the exception could
never extend to an alleged conspiracy between a corporation and
its sole individual shareholder, even if the sole shareholder
stood to gain financially from the conspiracy as a result of his
or her interest in another company, or if the sole shareholder
was engaged in a scheme to loot his or her own corporation.

Cf.

ePlus Tech., 313 F.3d at 179; Greenville Publ'g, Co., 496 F.2d
at 399-400.

In any event, the Court need not decide whether the

independent personal stake exception is inapplicable to a claim

14

Of course, the relationship between a parent and its wholly
owned subsidiary may be much more financially complicated than
merely the direction of the subsidiaries' net profits to the
parent.
20

of conspiracy between a parent entity and its wholly owned
subsidiaries.

Even assuming arguendo that the exception is

available to Plaintiff, the facts as alleged in the SAC are
insufficient to sustain its invocation.
Here, Plaintiff alleges that the Other Dealer Defendants
and Heritage have an independent personal stake, outside their
relationship with Atlantic, in achieving the illegal objective
of the non-disclosure conspiracy because each stood to profit
individually from the scheme.

As wholly owned subsidiaries of

Atlantic, the fact that Heritage and the Other Dealer Defendants
stood to profit from the scheme by selling a higher volume of
former short-term rentals for above-market value is not a
financial stake separate from, and independent of, their
relationship with Atlantic.

To the extent that Heritage and the

Other Dealer Defendants increased their profits, so too did
Atlantic as their sole owner.

"Th[e] interpretation sought by

plaintiffs would cause the 'exception' to swallow the general
rule" because every conspiracy between a parent and its wholly
owned subsidiary in which the subsidiary stood to profit from
the conspiracy objective would – without anything more - bypass
the intracorporate conspiracy doctrine.

See Godfredson v. JBC

Legal Grp., P.C., 387 F. Supp. 2d 543, 550 (E.D.N.C. 2005)
(holding that the independent personal stake exception was
inapplicable to a claim that a law firm and its sole owner

21

conspired together where the plaintiff alleged that the owner
had a personal stake in the conspiracy based on his financial
interest in his own law firm); see also Patel v. Scotland Mem'l
Hosp., 91 F.3d 132, at *3 (4th Cir. 1996) (explaining that the
personal stake exception is limited "to include only instances
where the individual conspiring has a personal financial
interest in the conspiracy independent of the principal"); Douty
v. Irwin Mortg. Corp., 70 F. Supp. 2d 626, 633 (E.D. Va. 1999)
("[T]he Fourth Circuit has signaled that the personal stake
exception is a limited one.").
In sum, the SAC does not present a plausible claim that
Heritage, the Other Dealer Defendants, and Atlantic were legally
capable of conspiring with each other.

Consequently, there is

no viable conspiracy claim against the Other Dealer Defendants.15

D.

Resolution

Plaintiff has not alleged a viable conspiracy claim against
the Other Dealer Defendants.

Without a cognizable conspiracy

claim, Plaintiff provides no basis upon which she could have

15

The SAC contains allegations that "[t]he Defendant and/or
their owners and employees had an individual profit motive in
selling prior-rental vehicles without disclosing such prior use
to consumers." SAC ¶ 165. However, there are no claims
asserted against any employees, and no employees are named as
defendants in this action. Thus, the Court considers it
immaterial that any of the Defendants' employees stood to profit
individually as a result of the conspiracy.
22

standing to sue the Other Dealer Defendants with whom she had no
direct commercial dealings.16
Accordingly, all claims against the Other Dealer Defendants
in the Second Amended Complaint shall be dismissed.

III. CLAIMS AGAINST HERITAGE AND ATLANTIC
Bailey asserts claims against Heritage for its own actions
and against its parent corporation Atlantic on a vicarious
liability theory.

These claims are based on:



Implied Warranty of Merchantability – Counts One
and Two



Maryland Consumer Protection Act - Count Three



Deceit, Unjust Enrichment, Negligent
Misrepresentation, and Breach of Contract Counts Four, Five, Six and Seven



Racketeer Influenced and Corrupt Organizations
Act ("RICO") - Counts Eight, Nine and Ten

By the instant motion, Heritage and Atlantic seek dismissal
of Counts One, Two, Three, Eight, Nine, and Ten pursuant to Rule
12(b)(6).

16

Plaintiff has acknowledged that her standing to sue the
Other Dealer Defendants is based solely on the conspiracy
allegations. See [Document 24] at 9-10 ("This conspiracy among
all of the MileOne Defendants, which resulted in injury to Ms.
Bailey, gives her standing to sue each of them, as they all
participated in the scheme which caused her damages.").
23

A.

12(b)(6) Dismissal Standard

A motion to dismiss filed pursuant to Rule 12(b)(6) tests
the legal sufficiency of a complaint.

A complaint need only

contain "'a short and plain statement of the claim showing that
the pleader is entitled to relief,' in order to 'give the
defendant fair notice of what the . . . claim is and the grounds
upon which it rests.'"

Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007) (alteration in original) (citations omitted).
When evaluating a 12(b)(6) motion to dismiss, a plaintiff's
well-pleaded allegations are accepted as true and the complaint
is viewed in the light most favorable to the plaintiff.
However, conclusory statements or "a formulaic recitation of the
elements of a cause of action will not [suffice]."

Id.

A

complaint must allege sufficient facts "to cross 'the line
between possibility and plausibility of entitlement to relief.'"
Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009)
(quoting Twombly, 550 U.S. at 557).
Inquiry into whether a complaint states a plausible claim
is "'a context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.'"
(quoting Twombly, 550 U.S. at 557).

Id.

Thus, if "the well-pleaded

facts [contained within a complaint] do not permit the court to
infer more than the mere possibility of misconduct, the
complaint has alleged – but it has not 'show[n]' – 'that the

24

pleader is entitled to relief.'"

Id. (quoting Ashcroft v.

Iqbal, 556 U.S. 662, 679 (2009) (alteration in original)).

B.

Merchantability Claims (Counts One and Two)

Plaintiff alleges that Heritage's failure to disclose the
prior short-term rental status of the Vehicle to her before
purchase constitutes a breach of the implied warranty of
merchantability protected by Maryland law under Md. Code Ann.,
Com. Law § 2-314 (2)(a) (Count One) and the implied warranty of
merchantability protected by the Magnuson-Moss Warranty Act,
15 U.S.C. §§ 2301-2312 (Count Two).

Actions for breach of the

implied warranty of merchantability as defined by the MagnusonMoss Warranty Act generally are governed by the application of
substantive state law.

See Doll v. Ford Motor Co., 814 F. Supp.

2d 526, 545 (D. Md. 2011).

Here, the parties agree that the

dismissal analysis of Plaintiff's state law implied warranty
claim is equally applicable to the federal law claim.
Plaintiff alleges that a vehicle sold without disclosure of
its prior short-term rental status is not merchantable because
such a vehicle would not "[p]ass without objection in the trade
under the contract description" within the meaning of § 2314(2)(a) of the Maryland Commercial Law Article.

That is,

Plaintiff claims that by leaving the disclosure box for former
rental status unchecked in the sales agreement, Heritage

25

"affirmatively and falsely represented that the [V]ehicle[] had
not been used for short-term rentals" and thus that Heritage
sold her what purported to be a former consumer vehicle.17
130.

SAC ¶

According to the SAC, a vehicle described as a consumer

vehicle, but that is in fact a prior short-term rental, would be
objectionable in the trade because:


"[There is a] perception that these vehicles are
often driven hard by drivers who care little
about them, may not have been well maintained or
consistently maintained, and more often are
involved in accidents than vehicles used for
personal, family, and household purposes."



"A vehicle's prior use for short-term rental is
so significant both within the [retail] industry
and to the public . . . ." and



"[U]se for short-term rental depresses the market
value of such vehicles."

See SAC ¶¶ 3, 122-125.

The Defendants contend there is no

plausible claim that the Vehicle was not merchantable because
Plaintiff does not assert that the Vehicle suffered from any
tangible physical defect as a result of its prior rental use.

17

Plaintiff takes the position that Heritage's failure to
disclose clearly and conspicuously the Vehicle's former shortterm rental status in the sales agreement as required by
Maryland law is tantamount to an affirmative representation that
the Vehicle was a prior consumer vehicle. In their dismissal
motion, the Defendants do not take issue with this
characterization. For dismissal purposes, the Court will
presume, without deciding, that the nondisclosure constituted an
affirmative representation that the Vehicle was in fact used as
a prior consumer vehicle.
26

Generally speaking, the implied warranty of merchantability
concerns protecting buyers' expectations as to the condition and
quality of goods sold by merchants.

See generally Robinson v.

Am. Honda Motor Co., Inc., 551 F.3d 218, 225 (4th Cir. 2009)
(discussing and applying Maryland law).

Under the Maryland

Commercial Law Article, "a warranty that the goods shall be
merchantable is implied in a contract for their sale if the
seller is a merchant with respect to goods of that kind."
Code Ann., Com. Law § 2-314(1).

Md.

Section 2-314(2) explains

merchantability as follows:
Goods to be merchantable must be at least such as
(a) Pass without objection in the
under the contract description; and

trade

(b) In the case of fungible goods, are of
fair average quality within the description;
and
(c) Are fit for the ordinary purposes for
which such goods are used; and
(d) Run, within the variations permitted by
the agreement, of even kind, quality and
quantity within each unit and among all
units involved; and
(e) Are adequately contained, packaged, and
labeled as the agreement may require; and
(f) Conform to the promises or affirmations
of fact made on the container or label if
any.
(emphasis added).

27

Section 2-314 of the Maryland Commercial Law Article, which
adopts Section 2-314 of the Uniform Commercial Code, does not
define "merchantability," but rather lists the aforesaid six
independent minimum qualifications for a good to be considered
of merchantable quality.

See U.C.C. § 2-314 cmt. 6.

The bulk

of Maryland jurisprudence addresses the merchantability
qualification that the good in issue be "fit for the ordinary
purposes for which such goods are used" under § 2-314(2)(c).
This comes as little surprise, given that the U.C.C. comments
describe fitness for an ordinary purpose as "a fundamental
concept" of the implied warranty of merchantability.
2-314 cmt. 8.

U.C.C. §

Maryland cases addressing the merchantability

qualification of fitness for an ordinary purpose generally stem
from a claim that a product has some tangible or physical
"defect"18 or other shortcoming that renders the product unfit
for the ordinary purpose for which it is used; these cases often
overlap with product liability claims.

See, e.g., Crickenberger

v. Hyundai Motor Am., 404 Md. 37, 57-59, 944 A.2d 1136, 1148-49
18

Courts often employ the word "defect," which does not
appear in § 2-314, in merchantability cases as a means to
describe a discrete problem with a product that renders it unfit
for its ordinary purpose, and thus, not merchantable. See Ford
Motor Co. v. Gen. Acc. Ins. Co., 365 Md. 321, 326-27, 333-34,
779 A.2d 362, 365, 369 (2001) (holding, in a case in which the
plaintiff alleged that a design defect in a truck rendered it
unfit for its ordinary purpose under § 2-314(2)(c), that the
plaintiff must prove "a specific product defect . . . to
maintain a claim for breach of the implied warranty of
merchantability").
28

(2008) (Murphy, J., concurring) ("[A] breach of implied warranty
of merchantability action against a manufacturer is the
functional equivalent of a strict liability action . . . .");
see also Simpson v. Standard Container Co., 72 Md. App. 199,
202, 207, 527 A.2d 1337, 1339, 1342 (1987) (dismissing a claim
that a gasoline container designed without a childproof cap was
not merchantable because "appellants failed to allege any facts
that implied the can was not fit for its ordinary use, namely
the storage of gasoline").

For instance, in the context of

cars, "[t]he warranty of fitness for the ordinary purpose simply
means that the automobile is fit for reasonably safe
transportation when it is used in its normal manner."

Mercedes-

Benz of N. Am., Inc. v. Garten, 94 Md. App. 547, 562, 618 A.2d
233, 240 (1993) (citing Myers v. Montgomery Ward & Co., 253 Md.
282, 295-96, 252 A.2d 855, 863-64 (1969)); see also Carlson v.
Gen. Motors Corp., 883 F.2d 287, 289, 297-98 (4th Cir. 1989)
(holding that the district court properly dismissed a breach of
implied warranty of merchantability claim that widespread
problems with GM's diesel products had diminished the resale
value of plaintiffs' cars on the grounds that "fit for the
ordinary purposes" does not include claims of loss of resale
value without any claim of defect).
While fitness for an ordinary purpose may be the most
litigated of the minimum merchantability requirements set forth

29

in § 2-314(2), there exist five other independent and distinct
criteria, and the failure of a qualifying good to meet any one
those five requirements will result in non-merchantability.

See

generally Garten, 94 Md. App. at 561-63, 618 A.2d at 240
(analyzing § 2-314(2)(c) and (a) separately and concluding that
there was no evidence the car would be objectionable in the
trade under the contract description as a result of a delayed
shifting device on the grounds that all of the prior models had
the same device and the car at issue was accepted by another
dealer as a trade-in).

For instance, § 2-314(2)(a), at issue in

the instant case, incorporates trade quality standards and
assesses whether a certain good, when compared to other goods of
the same contract description, would pass without objection in
the pertinent trade.

See Robinson, 551 F.3d at 225 (dismissing

plaintiff's claim that Michelin "run-flat" tires were not
merchantable because their shorter tread life would prevent them
from passing without objection in the trade on the grounds that
plaintiff was comparing the Michelin tires to standard passenger
tires and not to other run-flat tires).
The Maryland appellate courts have not yet addressed
directly whether a vehicle can be considered non-merchantable
under § 2-314(2) in the absence of a claim that the car suffers
from some tangible defect (i.e., a design or manufacturing
defect) or has some concrete physical problem that renders it of

30

a lesser quality than other cars of the same contract
description.19

As a result, it is unclear whether Heritage's

failure to disclose an alleged undesirable fact about the
Vehicle's prior history can be considered objectionable in the
trade under the contract description within the meaning of § 2314(2)(a).

At least one state court offers support for

Plaintiff's non-merchantability theory.

In Terrell v. R & A

Manufacturing Partners, Ltd., 835 So. 2d 216 (Ala. Civ. App.
2002), the Court of Civil Appeals of Alabama concluded that
factual issues existed as to whether a trailer purchased by the
plaintiff would pass without objection in the trade and reversed
the lower court's grant of summary judgment to the defendant.
Id. at 228.

In Terrell, the plaintiff submitted evidence that:

(1) the seller represented the trailer was a 2000 model, when in
fact it was a 1999 model; (2) the model year affected the resale
value; and (3) a purchaser would be unhappy with a 1999 model if
he or she had ordered a 2000 model.

Id. at 222, 228.

Based on

this evidence, the court "conclude[d] that whether the trailer

19

Defendants rely upon Jones v. Koons Auto., Inc., 752 F.
Supp. 2d 670 (D. Md. 2010), to support their argument that the
implied warranty of merchantability does not remedy
misrepresentations and omissions as to the rental history of a
used vehicle. See [Document 21-1] at 14-15. While the Jones
case is factually on point and certainly persuasive, it does not
appear that the court in Jones was presented with the discrete
argument being made here by Plaintiff. Consequently, the Court
does not consider Jones fatal to Plaintiff's merchantability
claim in this case.
31

would pass without objection in the trade, and thus whether the
implied warranty of merchantability was breached, remains a
question for a fact-finder to determine."

Id. at 228.

The Court doubts – in the absence of Maryland precedent
supporting Bailey's position – that there would be a valid claim
based upon a violation of an implied warranty of
merchantability.

Were Counts One and Two the only claims based

upon the facts used for Bailey's merchantability contention, the
Court likely would dismiss the claims therein.

However, Bailey

presents claims in Counts Four, Five, Six, and Seven that, in
essence, rely upon the same factual allegations on which the
merchantability contention is based.

Therefore, the Court will

not now dismiss Counts One and Two.

C.

Maryland Consumer Protection Act Claim (Count Three)

"[A] private party suing under the [MCPA] must establish
'actual injury or loss.'"

Lloyd v. Gen. Motors Corp., 397 Md.

108, 143, 916 A.2d 257, 277 (2007).

"[T]o articulate a

cognizable injury under the [MCPA], the injury must be
objectively identifiable . . . measured by the amount the
consumer spent or lost as a result of his or her reliance on the
seller's misrepresentation."

Id.

Because a person who files an

MCPA complaint with the Attorney General, as opposed to filing a
private suit, need not allege an actual injury occurred,

32

"[r]equiring actual injury in private suits strikes an important
balance between two competing legislative objectives: preventing
unfair or deceptive practices while precluding aggressive,
'self-constituted private attorneys general' from bringing suit
'over relatively minor statutory violations.'"

Marchese v.

JPMorgan Chase Bank, N.A., 917 F. Supp. 2d 452, 467-68, (D. Md.
2013) (quoting Citaramanis v. Hallowell, 328 Md. 142, 152, 613
A.2d 964, 968 (1992)).
The SAC includes factual allegations that Heritage
purposefully concealed the prior short-term rental status of the
Vehicle purchased by Plaintiff because such a status decreases a
vehicle's market value and makes the car harder to sell, as well
as allegations that Plaintiff paid more for the Vehicle than it
was worth.

See SAC ¶¶ 54, 63, 150.

The SAC does not aver

explicitly that Heritage priced the Vehicle it sold to Plaintiff
as a consumer vehicle rather than as a former short-term rental,
or that such pricing had the effect of increasing the Vehicle's
sale price.

However, when viewing the facts from the vantage

point of Plaintiff and with all reasonable inferences drawn in
her favor, there is support for such an inference.

Cf. Tobey v.

Jones, 706 F.3d 379, 383 (4th Cir. 2013) ("[W]e find the facts
as alleged by [plaintiff] plausibly set forth a claim . . . .
[T]he facts set forth are from the vantage point of [plaintiff],
with all reasonable inferences drawn in his favor.").

33

Plaintiff

has pleaded a plausible claim within the meaning of the MCPA
that she was overcharged for the Vehicle, and thus, suffered
actual injury or loss as a result of Heritage's
misrepresentation.

The averments in the SAC are also adequate

to support a viable claim that Plaintiff suffered actual loss
because she purchased a vehicle that was represented to have
been formerly used as a consumer vehicle,20 but that was in fact
a prior short-term rental, which depreciated the vehicle's
value.21
Defendants rely on Jones v. Koons Automotive, Inc., 752 F.
Supp. 2d 670 (D. Md. 2010), to support their position that the
Plaintiff has failed to plead actual injury or loss under the
MCPA.

In Jones, the court dismissed the plaintiff's MCPA claim

based upon a failure to disclose the prior rental status of a
used car.

See id. at 683-85.

The Jones court stated:

20

As discussed supra, Plaintiff takes the position that the
failure to disclose clearly and conspicuously that the Vehicle
was a prior short-term rental is tantamount to an affirmative
representation that the car was previously a consumer vehicle.
21
In the Reply to the instant Motion, Defendants contend that
Plaintiff's injury claim is implausible because "the Kelley Blue
Book – a source widely used to determine the value of
automobiles - does not contain a separate value for used cars
that have previously served as short-term rentals." [Document
26] at 17. "A motion to dismiss under Rule 12(b)(6) tests the
sufficiency of a complaint; importantly, it does not resolve
contests surrounding the facts, the merits of a claim, or the
applicability of defenses." See Republican Party of N.C. v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992). Thus, the Court will
not adjudicate whether, in fact, prior rental vehicles are
priced lower than consumer vehicles.
34

The complaint does not point to any "cost of
remedy" or any other actual harm with
respect to Koons' alleged concealment of the
car's prior use as a rental car. Jones
merely states that she would not have
purchased the car or "would have demanded
significant price concessions." (ECF No. 13–
2, Am. Compl. ¶ 22). She does not allege
that she incurred additional repair costs,
for instance, because of the car's prior
use. Nor does she allege that the concealed
fact caused any diminution in the value of
the car. See Hallowell v. Citaramanis, 88
Md. App. 160, 170, 594 A.2d 591 (1991)
(determining
whether
actual
injury
was
establishing by looking to whether purchaser
suffered a diminution in the value of the
purchased
property
because
of
seller's
misrepresentations).
A hypothetical price
concession is simply not the type of
tangible injury appropriately recognized in
a private MCPA action, as virtually any
misrepresentation could support such a claim
of "injury."
The MCPA claim based on the
car's status as a rental car must be
dismissed.
Id. at 684 (emphasis added).
In the instant case, Bailey does, as the plaintiff in Jones
did not, allege that she was overcharged for the Vehicle and
that the Vehicle is worth less as a result of its true status.
Accordingly, Count Three shall not be dismissed.

35

D.

RICO Claims (Counts Eight, Nine, and Ten)

Plaintiff alleges that the Defendants22 "confederated
together to form an 'association in fact' racketeering
enterprise – the informal, non-incorporated MileOne Automotive
group," and that through that enterprise the Defendants engaged
in a pattern of racketeering activity, namely, employing a
fraudulent scheme to sell prior short-term rental vehicles
without disclosure of that fact to purchasers and using the U.S.
mails and electronic or telephonic communications in execution
of the scheme.
234.

See [Document 24] at 33-34; see also SAC ¶¶ 191-

Plaintiff asserts the aforesaid misconduct gives rise to

several violations of the RICO statute, 18 U.S.C. §§ 1961-1968:
Count Eight –

18 U.S.C. § 1962(a) – "It shall be
unlawful for any person who has
received any income derived . . .
from a pattern of racketeering . .
.
in
which
such
person
has
participated as a principal . . .
to use or invest, directly or
indirectly,
any
part
of
such
income . . . in the acquisition of
any
interest
in
.
.
.
any
enterprise which is engaged in
.
.
.
interstate
or
foreign
commerce."

Count Nine –

18 U.S.C. § 1962(c) - "It shall be

22

In light of the Court's standing determination, see supra
Part II, the named Defendants are limited to Heritage and
Atlantic. Consequently, the factual allegations related to the
RICO claims regarding the Other Dealer Defendants are in essence
averments relating to persons that although asserted to be
involved in the RICO-related conduct, are no longer parties to
this lawsuit.
36

unlawful for any person employed
by
or
associated
with
any
enterprise
engaged
in
.
.
.
interstate or foreign commerce, to
conduct or participate . . . in
the conduct of such enterprise's
affairs
through
a
pattern
of
racketeering
activity
or
collection of unlawful debt."
Count Ten –

18 U.S.C. § 1962(d) – "It shall be
unlawful
for
any
person
to
conspire to violate any of the
[aforesaid] provisions . . . ."

In assessing the plausibility of Plaintiff's RICO claims,
it is important to keep in mind that RICO "'does not cover all
instances of wrongdoing.

Rather it is a unique cause of action

that is concerned with eradicating organized, long-term,
habitual criminal activity.'"

US Airline Pilots Ass'n v.

Awappa, LLC, 615 F.3d 312, 317 (4th Cir. 2010) (quoting Gamboa
v. Velez, 457 F.3d 703, 705 (7th Cir. 2006)).

The Fourth

Circuit has warned that courts:
must also exercise caution "to ensure that
RICO's
extraordinary
remedy
does
not
threaten the ordinary run of commercial
transactions; that treble damage suits are
not brought against isolated offenders for
their harassment and settlement value; and
that the multiple state and federal laws
bearing on transactions . . . are not
eclipsed or preempted."
Id.

(alteration in original) (quoting Menasco, Inc. v.

Wasserman, 886 F.2d 681, 683 (4th Cir. 1989)).

37

1.

RICO Conspiracy Claim (Count Ten)

In Count Ten, Plaintiff alleges that Heritage, Atlantic,
and the Other Dealer Defendants conspired to engage in a pattern
of racketeering activity, such as mail and wire fraud, in
violation of 18 U.S.C. § 1962(d).

The Copperweld intracorporate

conspiracy doctrine is applicable to a § 1962(d) RICO conspiracy
claim.

See Sadighi v. Daghighfekr, 36 F. Supp. 2d 279, 297

(D.S.C. 1999).

Consequently, the RICO conspiracy claim shall be

dismissed for the reasons stated above regarding the Conspiracy
Contention.

See supra Part II.C-D.

Accordingly, Count Ten shall be dismissed.

2.

Substantive RICO Claims (Counts Eight and Nine)

In Counts Eight and Nine, Bailey presents claims that
Heritage and Atlantic are liable for violations of §§ 1962(a)
and (c) of the RICO statute.
To plead a RICO claim under §§ 1962(a) and/or (c), a
Plaintiff must allege adequately a pattern of racketeering
activity and that she suffered injury to her property as a
result of the alleged RICO violations.

See Sedima, S.P.R.L. v.

Imrex Co., 473 U.S. 479, 496 (1985) (discussing § 1962(c));
Busby v. Crown Supply, Inc., 896 F.2d 833, 836-37 (4th Cir.
1990) (discussing § 1962(a)).

There is an additional element

of "distinctiveness" required for a claim under § 1962(c).

38

The Defendants seek dismissal of Bailey's § 1962(a) and
§ 1962(c) claims, contending that Bailey has failed to plead
adequately:


Cognizable RICO injury – required for (a) and (c)



Distinctiveness – required for (c)



Pattern of racketeering activity – required for
(a) and (c)

a.

Cognizable RICO "Injury"

For a private person to maintain a claim for a RICO
violation, the claimant must establish that he or she was
"injured in his business or property by reason of a violation of
section 1962."

18 U.S.C. § 1964(c).

That is, to have standing

to bring a private RICO claim, a plaintiff plausibly must allege
that she suffered injury to her property and that the injury was
caused by the asserted RICO violation.

See generally Walters

v. McMahen, 684 F.3d 435, 444 (4th Cir. 2012) ("[T]he RICO
predicate acts must not only be a 'but for' cause of a
plaintiff's injury, but the proximate cause of that injury as
well."), cert. denied, 133 S. Ct. 1493 (2013); Wang Labs., Inc.
v. Burts, 612 F. Supp. 441, 444 (D. Md. 1984) ("[T]his Court
concludes that [Plaintiff's] allegations of injury to its
business reputation and customer goodwill in addition to its

39

loss of revenues satisfied the injury requirement of 18 U.S.C. §
1964(c)" for purposes of a Rule 129(b)(6) dismissal motion.).
The Defendants assert that Plaintiff has failed to allege
she suffered a cognizable injury to her property as a result of
the Defendants' alleged RICO violations because the SAC merely
contains bald assertions that Plaintiff lost the opportunity to
decline to purchase the Vehicle in light of the rental history
and/or to insist on a price concession from Heritage.

See

Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721, 728-31 (8th
Cir. 2004) (explaining that injury to intangible property
interests cannot support standing to bring RICO claims).
However, as discussed supra in connection with the MCPA claim,
the factual allegations in the SAC present a plausible claim
that Plaintiff was overcharged for the Vehicle because the
Vehicle was sold falsely as a former consumer car.

See supra

Part III.C.
Defendants take the position that the "overcharged injury"
is still insufficient because it does not amount to a concrete
financial loss to Plaintiff.

While Defendants do not cite to

any Fourth Circuit case law, other circuits have held that "'a
showing of 'injury' requires proof of concrete financial loss,
and not mere 'injury to a valuable intangible property
interest.'" See, e.g., Steele v. Hosp. Corp. of Am., 36 F.3d 69,
70 (9th Cir. 1994) ("[T]he district court held that because the

40

patients did not show any proof of concrete financial loss, they
lacked standing.

The district court explained that it was the

insurance companies and not the patients themselves who suffered
financial loss from the allegedly fraudulent health care
billings.

[We agree that i]t is not enough that the patients

show that their insurance company had to pay out more than it
otherwise would have without the alleged RICO violation.").
However, it appears that allegations that one was overcharged
for a car as a result of a fraudulent scheme to conceal the
car's true history, and thus its actual market value, could be
found to present a claim for a concrete financial loss.

Cf.

Wilson v. Parisi, 549 F. Supp. 2d 637, 640, 652 (M.D. Pa. 2008)
(considering plaintiffs' claim that they paid more for their
property than its fair market value to be a cognizable injury in
a RICO case involving "a predatory lending scheme aimed at low
income . . . buyers").

The bulk of the out-of-circuit cases

relied upon by the Defendants does not diminish the viability of
Plaintiff's RICO injury theory.

See, e.g., In re Taxable Mun.

Bond Sec. Litig., 51 F.3d 518, 523 (5th Cir. 1995) ("[Plaintiff]
has not alleged lost profits. Rather, he only alleges a lost
opportunity to borrow at a low interest rate. . . . Such
speculative damages are not compensable under RICO . . . .");
Fleischhauer v. Feltner, 879 F.2d 1290, 1299-1300 (6th Cir.
1989) ("RICO plaintiffs are entitled only to damages to business

41

or property proximately caused by the predicate acts.

Applying

this rule to the circumstances of this case we believe that
plaintiffs' damages should be limited to the amounts actually
invested" and cannot include compensation for physical injury or
mental suffering. (citation omitted)).
The case of In re Bridgestone/Firestone, Inc. Tires
Products Liab. Litig., 155 F. Supp. 2d 1069 (S.D. Ind. 2001),23
cited by the Defendants was a putative class action case.

In

Bridgestone, the plaintiffs asserted RICO claims, among others,
based on the allegation that that they had leased or owned
vehicles equipped with Firestone tires and that those tires were
unreasonably dangerous due to their propensity to suffer tread
separation and were therefore defective.
1076-77.

155 F. Supp. 2d at

As to the asserted RICO injury, the plaintiffs claimed

to have "'paid inflated prices to buy or lease products the
market has now devalued because their previously concealed
design defects render them unsafe.'"
omitted).

Id. at 1090-91 (citation

In a lengthy analysis, the Bridgestone court held

that the plaintiffs' allegations of injury resulting from "the
diminished value of their property" did not satisfy RICO's
injury requirement because plaintiffs did not sustain "an
actual, concrete monetary loss (i.e., an 'out-of-pocket' loss)."
23

Bridgestone, 155 F. Supp. 2d 1069 (S.D. Ind. 2001), on
reconsideration in part, 205 F.R.D. 503 (S.D. Ind. 2001), rev'd
in part, 288 F.3d 1012 (7th Cir. 2002).
42

Id. at 1090-96.

According to the court, "Plaintiff's assertion

of financial loss [wa]s grounded in the possibility of future
events" - the tires may, at some time in the future, suffer from
tread separation, or the plaintiffs may resell vehicles equipped
with the tires at a lower price than they would have received
without the defect.

Id. at 1091.

Thus, because the plaintiffs

had not yet "realized the diminished value or experienced
product failure," the court held that there was no tangible
economic harm compensable under RICO.

See id.

The instant case is not a products liability case.

Unlike

the plaintiffs in Bridgestone, Bailey does not allege that the
Vehicle suffers from a defect concealed by Heritage or that the
Vehicle's economic value has diminished because of the
possibility that a defect will manifest at some point in the
future.
loss.

Further, Bailey does not base her claim on some future

Rather, Bailey contends that she suffered the claimed

loss at the moment of purchase in reliance upon the false
representation that she was not buying a former short-term
rental vehicle.
Plaintiff has alleged a plausible and cognizable RICO
injury.

43

b.

Distinctiveness

It is unlawful under 18 U.S.C. § 1962(c):
for any person employed by or associated
with any enterprise engaged in, or the
activities of which affect, interstate or
foreign commerce, to conduct or participate,
directly or indirectly, in the conduct of
such enterprise's affairs through a pattern
of racketeering activity or collection of
unlawful debt.
(emphasis added).
"[T]o establish liability under § 1962(c) one must allege
and prove the existence of two distinct entities: (1) a
'person'; and (2) an 'enterprise' that is not simply the same
'person' referred to by a different name."

Cedric Kushner

Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001).

That is,

there must be a "person," alleged to have violated § 1962(c) and
to be liable to the claimant for damages, who is separate and
distinct from the "enterprise," or tool, through which the RICO
violation occurred.

See Busby, 896 F.2d at 840-41.

can be an individual or corporate entity.

A "person"

18 U.S.C. § 1961(3).

Of course, there may be multiple persons whose association with
the same RICO enterprise gives rise to multiple violations of
§ 1962(c).
A RICO "enterprise" is defined as "any individual,
partnership, corporation, association, or other legal entity,
and any union or group of individuals associated in fact

44

although not a legal entity."
added).

18 U.S.C. § 1961(4) (emphasis

The RICO enterprise must "exist[] separate and apart

from the pattern of racketeering activity in which it was
engaged."

United States v. Tillett, 763 F.2d 628, 630-31 (4th

Cir. 1985).

A RICO enterprise is characterized by "'continuity,

unity, shared purpose and identifiable structure.'" United
States v. Fiel, 35 F.3d 997, 1003 (4th Cir. 1994) (citation
omitted).

An association-in-fact enterprise is not defined by a

formal legal structure, but is instead characterized by the
association of its members "for a common purpose of engaging in
a course of conduct." Cf. United States v. Turkette, 452 U.S.
576, 583 (1981).
The parties debate whether the common entity ownership
renders any claim that Heritage and Atlantic were distinct from
MileOne Automotive implausible.

The pertinent cases relied upon

by the parties relating to common ownership between "persons"
and an "enterprise" generally fall into two categories: (1) the
RICO enterprise is a formal entity or (2) the RICO enterprise is
an "association-in-fact" of which the alleged RICO "persons" are
members.
(i)

Formal Entity Enterprise

With respect to the formal entity scenario, in Cedric
Kushner Promotions, the Supreme Court addressed an alleged §
1962(c) claim in which the liable "person" was the individual

45

sole owner/employee of a corporation and the "enterprise" was
the corporation.

See 533 U.S. at 160.

Where the owner, or RICO

"person," allegedly was conducting the enterprise's corporate
affairs in a RICO-forbidden way, the Supreme Court held that
there was sufficient distinction.

See id. at 163, 166.

The

Supreme Court noted that in such a situation, "[t]he corporate
owner/employee, a natural person, is distinct from the
corporation itself, a legally different entity with different
rights and responsibilities due to its different legal status.
And we can find nothing in the statute that requires more
'separateness' than that."

Id. at 163.

However, the Supreme

Court explicitly distinguished the case before it from instances
in which the "corporation [i]s the 'person' and the corporation,
together with its employees and agents, [is] the 'enterprise.'"
See id. at 164.
The Fourth Circuit has held that the distinctiveness
necessary for a § 1962(c) claim is lacking "when a corporation
and its wholly owned subsidiary are involved" because then, "a
'person' is not distinct from an 'enterprise.'"

NCNB Nat'l Bank

of N.C. v. Tiller,24 814 F.2d 931 (4th Cir. 1987); see also
United States v. Crysopt Corp., 781 F. Supp. 375, 381 (D. Md.
24

NCNB Nat'l Bank of N.C., 814 F.2d 931 (4th Cir. 1987);
overruled on other grounds by Busby v. Crown Supply, Inc., 896
F.2d 833 (4th Cir. 1990).

46

1991) ("Fourth Circuit precedent is clear that RICO defendants
must be legally distinct from the enterprise through which they
allegedly conduct racketeering activities.").

Although not

adopting a per se rule, other courts have held that a parent and
its wholly owned subsidiary lack the distinctiveness necessary
to be a "person" and an "enterprise," respectively, where there
is no assertion that the subsidiary took action independent of
its parent.

See, e.g., Bessette v. Avco Fin. Servs., Inc., 230

F.3d 439, 448-49 (1st Cir. 2000).

(ii) Association-in-Fact Enterprise
With respect to the second category of an association-infact, in which the alleged "persons" are also members of the
"enterprise," there is certainly judicial recognition that "a
defendant may be both a person and a member of a collective RICO
enterprise" without negating the distinctiveness requirement.
See, e.g., In re Lupron Mktg. & Sales Practices Litig., 295 F.
Supp. 2d 148, 173 (D. Mass. 2003) (citing United States v.
Goldin Indus., Inc., 219 F.3d 1271 (11th Cir. 2000); Cullen v.
Margiotta, 811 F.2d 698 (2d Cir. 1987), overruling on other
grounds recognized by Cruz v. FXDirectDealer, LLC, 720 F.3d 115
(2d Cir. 2013)).

As analogized by the Lupron court, "[t]he

basic idea is that while one basketball player does not
constitute a team, an association of five players does, without

47

each losing his identity as a distinct person."

Id.

However, a

"singular person or entity [cannot be] both the person and the
only entity comprising the [association-in-fact] enterprise."
United States v. Goldin Indus., Inc., 219 F.3d 1271, 1275 (11th
Cir. 2000).
Thus, just as adequate distinctiveness may be missing
between a parent-person and a wholly owned subsidiary-enterprise
(or vice versa), it may also be lacking where the parent and its
wholly owned subsidiaries are both the "alleged persons" and the
sole members of the association-in-fact enterprise.

Cf. In re

Toyota Motor Corp. Unintended Acceleration Mktg., Sales
Practices, & Products Liab. Litig., 826 F. Supp. 2d 1180, 1202
(C.D. Cal. 2011) (holding that the plaintiffs failed to allege
sufficiently distinctiveness between "persons" and "associationin-fact," when "four named, affiliated corporate Defendants"
were alleged to be both the RICO persons and the enterprise, on
the grounds that "Plaintiffs merely allege that the Defendants
are associated in a manner directly related to their own primary
business activities").

(iii) Resolution
Bailey's claims fall into the second category of "person"
and "enterprise" in the common ownership context – association
in fact.

Plaintiff alleges that Heritage and Atlantic are the

48

"persons" liable for violating § 1962(c) and that the RICO
"enterprise" – MileOne Automotive - is an association in fact
comprised of the union of Heritage, Atlantic, and the Other
Dealer Defendants.25

Thus, Plaintiff alleges that the parent

(Atlantic) and its wholly owned subsidiary (Heritage) are both
the "persons" and the "enterprise."

The Defendants assert that

there is no plausible claim that Heritage and Atlantic are
meaningfully distinct from MileOne Automotive, given the common
ownership and the factual allegations that Heritage and the
Other Dealer Defendants simply carry on the business of
Atlantic.
In the SAC, Plaintiff seeks to label MileOne Automotive as
separate and distinct from the parent corporation and wholly
owned subsidiaries of which it consists.

However, "'[t]he

presence [] of a few conclusory legal terms does not insulate a
complaint from dismissal under Rule 12(b)(6) when the facts
alleged in the complaint' cannot support the legal conclusion."
Migdal v. Rowe Price-Fleming Int'l, Inc., 248 F.3d 321, 326 (4th
Cir. 2001) (alteration in original) (citation omitted).
Labeling the corporations and MileOne Automotive as "distinct"

25

Claims against the Other Dealer Defendants have been
dismissed from the instant suit. See supra Part II.D. However,
allegations of their membership in MileOne Automotive are
relevant to Plaintiff's claim that Heritage and Atlantic are
liable "persons" who committed RICO violations through MileOne
Automotive, an association made up of themselves and others.
49

entities is a legal conclusion that must be supported by
underlying factual allegations to avoid dismissal.

With respect

to the facts, the SAC contains allegations that:


Atlantic "owns and operates car dealerships
[including Heritage and the Other Dealer
Defendants and] is engaged in selling vehicles
through multiple dealerships that it owns and
operates;"



Atlantic, Heritage, and the Other Dealer
Defendants are separately incorporated and have
their own business location and employees (other
than an overlap in management);



Heritage and the Other Dealer Defendants are used
car dealerships that sell used vehicles to
consumers;



Atlantic, Heritage, and the Other Dealer
Defendants operate jointly through MileOne by
using the MileOne logo and website to market and
sell used vehicles; and



Through the MileOne Automotive association,
Atlantic, Heritage, and the Other Dealer
Defendants routinely concealed the prior rental
history of used vehicles sold to consumers in
violation of Maryland law.

See SAC ¶¶ 3-17, 20-34.
The allegations in the SAC are inadequate to plead a
plausible claim that Mileone Automotive is a distinct entity
from Heritage, Atlantic, and the Other Dealer Defendants for
purposes of Plaintiff's § 1962(c) claim.

Heritage and the Other

Dealer Defendants are wholly owned subsidiaries of Atlantic.
Plaintiff alleges that Heritage and the Other Dealer Defendants

50

are all used car dealerships under the operation and ownership
of Atlantic and that these commonly owned entities operate
jointly and associate together as MileOne Automotive to sell
used vehicles legitimately, as well as fraudulently.

As a

result, Bailey has not presented a plausible claim that the
alleged RICO persons and the alleged association-in-fact
enterprise are distinct.
Accordingly, all claims in Count Nine shall be dismissed.

c.

Pattern of Racketeering Activity

To plead a claim under § 1962(a), a plaintiff must allege
facts presenting a plausible basis to find (1) racketeering
activity and (2) a pattern of such activity.26
"Racketeering activity" is defined at § 1961(1) as any one
of several indictable offenses, including mail fraud and wire
fraud.

The Fourth Circuit has expressed concern "about basing a

RICO claim on predicate acts of mail and wire fraud because it
will be the unusual fraud that does not enlist the mails and
wires in its service at least twice." GE Inv. Private Placement
Partners II v. Parker, 247 F.3d 543, 549 (4th Cir. 2001).
A "'pattern of racketeering activity' requires at least two
acts of racketeering activity, one of which occurred after the
26

This analysis is also applicable to § 1962(c), but the
Court has already found those claims subject to dismissal on
other grounds. See supra Part III.D.2.b.
51

effective date of [the RICO statute] and the last of which
occurred within ten years . . . after the commission of a prior
act of racketeering activity.'"

US Airline Pilots Ass'n, 615

F.3d at 318 (alteration in original) (quoting 18 U.S.C. §
1961(5)).

"[W]hile two acts are necessary, they may not be

sufficient."

Sedima S.P.R.L., 473 U.S. at 496 n.14.

To state a

plausible claim of a pattern of racketeering activity, the
plaintiff must allege facts establishing "that the racketeering
predicates are related and that they amount to or pose a threat
of continued criminal activity."

Cf. H.J. Inc. v. Nw. Bell

Tel. Co., 492 U.S. 229, 239 (1989) (reversing a 12(b)(6)
dismissal of a RICO complaint and discussing what a plaintiff in
a RICO case must show to prove a pattern of racketeering
activity).

With respect to the requirement that the predicate

acts be "related," the Fourth Circuit has explained that "[t]he
relationship criterion may be satisfied by showing that the
criminal acts 'have the same or similar purposes, victims, or
methods of commission, or are otherwise interrelated by
distinguishing characteristics and are not isolated events.'"
Anderson v. Found. for Advancement, Educ. & Emp't of Am.
Indians, 155 F.3d 500, 505–06 (4th Cir. 1998) (quoting H.J.
Inc., 492 U.S. at 240).
Here, the Defendants assert there is no viable claim of a
pattern of racketeering activity because the Plaintiff has

52

alleged only one instance of specific fraudulent conduct
directed at her.

[Document 21-1] at 22.

Plaintiff disagrees,

pointing to allegations in the SAC that Heritage and others
within the MileOne Automotive association routinely engaged in
the same fraudulent conduct as that directed against Plaintiff,
on "hundreds if not thousands of occasions," vis-à-vis other
purchasers, like the members of the putative class.
106.

SAC ¶¶ 84-

However, the conclusory general assertion that the

Defendants engaged in numerous acts of mail and/or wire fraud by
concealing the former short-term rental use of vehicles from
purchasers other than Bailey is insufficient.

A "plaintiff must

plead 'circumstances of the fraudulent acts that form the
alleged pattern of racketeering activity with sufficient
specificity pursuant to Fed.R.Civ.P. 9(b).'"

Menasco, Inc. v.

Wasserman, 886 F.2d 681, 684 (4th Cir. 1989) (quoting Schreiber
Distrib. Co. v. Serv–Well Furniture Co., 806 F.2d 1393, 1400
(9th Cir. 1986)).
In the absence of any specific allegation of fraudulent
conduct beyond that directed to Plaintiff, the SAC fails to
allege a plausible pattern of racketeering activity.

See Grant

v. Shapiro & Burson, LLP, 871 F. Supp. 2d 462, 475 (D. Md. 2012)
(dismissing RICO claim because the complaint failed to allege
any specific fraudulent conduct outside of that directed to the
plaintiff); Davis v. Wilmington Fin., Inc., No. PJM 09-1505,

53

2010 WL 1375363, at *4 (D. Md. Mar. 26, 2010) (dismissing RICO
claim because, inter alia, the allegations of racketeering in
the complaint were "limited solely to Plaintiffs and their
mortgage transaction").
The Court will dismiss the RICO claims in the SAC due to
the failure adequately to allege a pattern of racketeering
activity.

The Court will not, however, foreclose Plaintiff

from engaging in discovery pertinent to the claims not
dismissed27 herein that may yield evidence adequate to support a
plausible claim of a pattern of racketeering activity to justify
the reinstatement of Count Eight.

IV.

CONCLUSION
For the foregoing reasons:
1.

Defendants' Motion to Dismiss Second Amended
Complaint [Document 21] is GRANTED IN PART AND
DENIED IN PART.

2.

All claims against the Other Dealer Defendants
are dismissed.

3.

All claims in Counts Nine and Ten are dismissed.

4.

All claims in Count Eight are dismissed without
prejudice to the ability of Plaintiff to seek to

27

For example, at least the deceit claim in Count Four would
appear to provide a basis for discovery as to customers deceived
in addition to Bailey.
54

reinstate the claim upon presentation of an
adequate basis to assert a pattern of
racketeering activity.

SO ORDERED, on Friday, January 17, 2014.
/s/__________
Marvin J. Garbis
United States District Judge

55